Cyprus’ economy has grown by 6% GDP in the first nine months, despite the ongoing fallout from the war in Ukraine and the subsequent sanctions on invading Russia, said the Central Bank.
Releasing its December 2022 Macroeconomic Forecast for the economy, the Central Bank said the consequences of the war have not been reflected significantly in the figures of economic activity but are expected to impact the first half of 2023.
“The downward revision of the outlook for the external environment, due to the turbulence in the international energy markets, has adversely affected the consumer and business climate, and as a result, the economy in the euro area is expected to enter a mild and short-lived recession from the end of 2022 until the end of the first quarter of 2023”.
Increased energy prices are expected to reduce the public’s purchasing power which, combined with rising interest rates, will negatively impact domestic demand in 2023.
“Disruptions in the supply chain of raw materials and goods continue to affect economic activity and contribute to rising prices.
“The gradual correction of the above-mentioned disturbances is expected around the middle of 2023”.
In its forecast, the CBC expects the year to close, with Cyprus’ economy growing by 5.8%, compared to 6.6% in the previous year.
The growth in GDP will be down to local demand in investments and consumption and the rebound of tourism.
CBC foresees domestic demand powered by ongoing investment, the reopening of the economy following the pandemic, the continued inflow of foreign companies, especially in the technology sectors and, in part, the support of private consumption.
GDP is expected to slow to 2.5% in 2023 and grow to 3.1% in 2024 and 2025, staying in line with the central bank’s September outlook.
Unemployment in 2022 is expected to decline to 6.7% from 7.5% in 2021. This is due to a greater-than-expected labour shortage.
A continued downward trend is predicted, with unemployment reaching 6.5% in 2023, 5.9% in 2024 and approaching full employment conditions in 2025.
The CBC said the year would end with an 8.1% inflation rate from 2.3% in 2021.
A gradual normalisation of inflationary pressures is foreseen for the years 2023-2025, with inflation reaching 3.3%, 1.7% and 1.8%, affected by problems in supply chains and tightness in the labour market.